Kartman v. State Farm Mut. Auto. Ins. Co.

• Citation: 634 F.3d 883
• Decision Date: 29 March 2011
• Docket Number: No. 09–1725.,09–1725.
• Parties: Cynthia KARTMAN, et al., Plaintiffs–Appellees,v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, et al., Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

634 F.3d 883

Cynthia KARTMAN, et al., Plaintiffs–Appellees,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, et al., Defendants–Appellants.

No. 09–1725.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 16, 2009.Decided Feb. 14, 2011.Rehearing and Rehearing En Banc Denied March 29, 2011.

William N. Riley (argued), Attorney, Price Waicukauski Riley & Debrota, Indianapolis, IN, for Plaintiffs–Appellees.Mark A. Johnson (argued), Attorney, Rodger L. Eckelberry, Attorney, Baker & Hostetler, Columbus, OH, for Defendants–Appellants.Before CUDAHY, WOOD, and SYKES, Circuit Judges.SYKES, Circuit Judge.

After a severe hailstorm struck central Indiana in April 2006, thousands of homeowners filed claims with State Farm Fire and Casualty Company ¹ for hail damage to the roofs of their homes. State Farm thereafter paid millions in property-damage claims, but not all of the policyholders were satisfied with their payments. Several brought this proposed class action in state court alleging breach of contract, bad-faith denial of insurance benefits, and unjust enrichment. The lawsuit sought damages and an injunction requiring State Farm to reinspect all class members' roofs pursuant to a “uniform, reasonable, and objective” standard for evaluating hail damage. State Farm removed the case to federal court.

The plaintiffs moved to certify a damages class under Rule 23(b)(3) of the Federal Rules of Civil Procedure and also—or alternatively—a class for injunctive relief under Rule 23(b)(2). The district court issued a split decision on the motion. The court declined to certify a Rule 23(b)(3) damages class, holding that each plaintiff's claim of underpayment required an individualized factual inquiry on the merits. But the court concluded that a class claim for injunctive relief could proceed under Rule 23(b)(2); the court certified a class to determine whether State Farm should be required to reinspect policyholders' roofs pursuant to a “uniform and objective standard.” State Farm appealed, arguing that certification under Rule 23(b)(2) is not permissible for this action.

State Farm is right. This case is not appropriate for class certification under Rule 23(b)(2). As an initial matter, the plaintiffs' claim for injunctive relief suffers from some serious conceptual confusion. This is a suit for breach of contract and bad-faith denial of insurance benefits, the remedy for which is damages. State Farm had a contractual obligation to pay policyholders for their hail-damage losses and a corresponding duty in tort not to deny claims in bad faith. But there is no contract or tort-based duty requiring the insurer to use a particular standard for assessing hail damage. As such, there is no independent cognizable wrong to support a claim for injunctive relief requiring State Farm to conduct a class-wide roof reinspection pursuant to a “uniform and objective” standard.

More generally, certification of a class under Rule 23(b)(2) is permissible only when class plaintiffs seek “final injunctive relief” that is “appropriate respecting the class as a whole.” Fed.R.Civ.P. 23(b)(2). Here, the requested injunction is neither “appropriate” nor “final.” The relief is not appropriate for several reasons, not least of which is that the normal remedy for wrongful denial of insurance benefits is damages, not equitable relief. Moreover, the injunction envisioned by the plaintiffs would in no sense be a final remedy. A class-wide roof reinspection would only lay an evidentiary foundation for subsequent individual determinations of liability and damages.

Finally, certification of an “issues” class under Rule 23(c)(4) is neither sought nor appropriate here. The particular standard State Farm used to evaluate policy-holders' hail damage is not an element of any case presented by these plaintiffs for final injunctive relief. In some circumstances, the applicable standard of care might be a proper separable issue, but in this case, the ultimate relief sought is money damages, and thus the requirements for certification of a damages class under Rule 23(b)(3) must be satisfied. Here, they were not. Accordingly, we reverse the district court's order and remand with instructions to decertify the class.

I. Background

State Farm issues homeowner's insurance providing coverage for “accidental direct physical loss to property,” including damage resulting from windstorms or hail. In April 2006 a severe hailstorm swept through the Indianapolis metropolitan area causing widespread property damage. Some 49,000 State Farm policyholders filed claims for property damage as a result of the storm. Claims under homeowner's policies were adjusted based on individualized assessments of the homeowner's property damage. State Farm has guidelines to aid adjustors in determining a homeowner's loss but does not use a single, uniform test for assessing hail damage.

Once an adjustor provides a property-damage estimate, the policyholder is permitted to contest that decision in several ways. First, an insured may request that another insurance adjustor provide an independent evaluation. Also, specifically for losses in connection with the April 2006 hailstorm, State Farm permitted dissatisfied policyholders to challenge their damage estimates in arbitration proceedings.² Through March 18, 2008, State Farm used these procedures to adjust and pay more than $263 million in property-damage claims resulting from the hailstorm.

In March 2007 several policyholders filed this lawsuit in state court asserting claims for breach of contract, bad-faith denial of insurance benefits, and unjust enrichment arising out of State Farm's adjustment of their claims for hail damage to the roofs of their homes. The suit was brought as a class action on behalf of approximately 7,000 policyholders and alleged that State Farm engaged in pervasive undercompensation of roof-damage claims stemming from the April 2006 hailstorm. As part of their theory that State Farm breached its contract and tort-based duties to policyholders, the plaintiffs alleged that the insurer failed to implement a uniform “reasonable, objective” standard for assessing hail-damaged roofs.

To highlight the problems associated with State Farm's ad hoc method for evaluating hail-damage claims, the plaintiffs cited the experiences of class representatives Karen Stergar and Hong Gao.³ Stergar alleged that when she submitted her claim, State Farm sent several insurance adjustors to assess her roof damage and all provided vastly different opinions. Stergar claims that the first adjustor did not even step out of his car, yet determined the claim was only worth $700. Dissatisfied with this offer, Stergar requested another opinion. State Farm then sent a second adjustor who climbed on the roof and suggested that Stergar needed an “entire new roof,” but stated that he could not provide a compensation figure until a “ropes-and-ladders team” examined the damage. When the ropes-and-ladders team arrived, it disagreed with the second adjustor's opinion and concluded instead that Stergar's roof sustained $3,000 worth of damage to shingles, vents, and a downspout.

The State Farm adjustor who examined Gao's roof determined that there was some damage to vents, gutters, and the home's left and rear elevations, and also that some screens on the left and rear elevations needed replacing. State Farm paid $434.08 for these repairs. Gao was not satisfied; she believed she needed a completely new roof. Sometime later, she discovered an interior leak in her house and contacted State Farm. The insurer determined that the April 2006 hailstorm caused the leak and paid for this repair. Gao believed the leak was evidence that her roof damage was extensive and that State Farm should pay to install a new roof. She eventually replaced her roof at her own expense.

The plaintiffs sought compensatory and punitive damages and also requested injunctive relief in the form of an order requiring State Farm to reinspect all class members' roofs pursuant to a uniform and objective standard for evaluating hail damage. State Farm removed the suit to federal court pursuant to 28 U.S.C. § 1332(d). The plaintiffs then moved for class certification under both Rules 23(b)(2) and (b)(3).

The district judge declined to certify a Rule 23(b)(3) damages class based on a lack of common issues of fact; each plaintiffs claim of underpayment required individualized determination on the merits. But the judge certified a class under Rule 23(b)(2) to adjudicate the request for an injunction requiring State Farm to conduct a class-wide roof reinspection pursuant to a “uniform and objective standard for evaluating hail damage claims.” The judge added that he would use the Rule 23(b)(2) injunction proceeding to assess State Farm's liability for damages, and that if State Farm was found liable, he would reconsider whether to certify a Rule 23(b)(3) damages class or a subclass. The judge defined the Rule 23(b)(2) injunction class as including all policyholders who submitted insurance claims resulting from the April 2006 hailstorms and did not receive sufficient compensation for an “entirely new roof at State Farm's expense, minus any applicable deduction or depreciation.” Excluded from the class were those individuals who had resolved their claims with State Farm via binding arbitration, settlement agreement, or a judgment in state or federal court. State Farm sought interlocutory review of the district court's certification order pursuant to Rule 23(f), and we granted the petition.

II. Discussion

We review the district court's decision to certify a injunction class under Rule 23(b)(2) for abuse of discretion. Andrews v. Chevy Chase Bank, 545 F.3d 570, 573 (7th Cir.2008). Ordinarily, the district court has substantial latitude in the management of complex class-action litigation. See Carnegie v. Household Int'l, Inc., 376 F.3d 656, 661 (7th Cir.2004) (district courts...